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How Great Businesses Keep Surviving and Thriving

This article is by Miles D. White, the chairman and chief executive of Abbott Laboratories, the global health care company.

Facebook’s much-anticipated initial public offering highlights the dynamism of our economic environment and all its opportunities and challenges. Some 200 companies are currently in the initial public offering pipeline in the U.S., nearly the most in a decade, according to the IPO tracking firm Renaissance Capital. At the same time, spinoffs and splits at public companies in 2011 were up more than 50% from the year before. Among those is Abbott, the company I’ve led since 1999, which is in the process of separating into two businesses, a diversified medical products company and a research-based pharmaceutical one. Still other longstanding enterprises, including a number of great American brands, lie in bankruptcy.

The striking contrasts along this spectrum vividly illustrate the corporate cycle of rise and fall, and the chief challenge and imperative for any company and its CEO: sustaining the enterprise.

Abbott began business in 1888 and was an original member of the Standard & Poor’s 500 Index when it was launched in 1957. Today fewer than 80 of those then-leading companies still exist. So what will it take for Facebook—or any of the other companies now going public—to build a sustainable business enterprise that can grow and thrive into the next century?

In my view, there are two key requirements: an ability to maintain an unrelenting focus on the future and a determination to make difficult, sometimes transformational changes.

At too many companies there’s little thought given to the next quarter century in the rush to meet the demands of the next quarter. Companies need to have a strong focus on anticipating change, at both the macroeconomic and industry-specific levels. This leads to some critical questions: How do you best position yourself to confront changes in markets, demographics, products, and technologies? What are the best investments to make now in preparation for those changes? One of the elements of successful long-term planning is understanding which changes in the business environment are fundamental, and which are just short-term storms to be weathered.

Fujifilm, for example, saw that digital photography would one day make traditional film obsolete. It made early investments in digital, developed new business lines, and has succeeded in the face of disruptive change to its core business. Apple, originally a maker of personal computers, didn’t hesitate to bring us the iPad, a computing format that may cannibalize its original business. Its focus is on winning the future, not protecting its past. Disney has continually redefined itself, broadening its scope in the process, seeing itself as a provider of entertainment, not merely a maker of cartoons, its original business. This approach has allowed it to continually reinvent itself and capture every new kind of opportunity that arises in its space.

In Abbott’s industry, health care, fundamental shifts in our global business environment have created significant challenges and opportunities. We’ve taken very deliberate steps to address both.

Innovative health care was traditionally a business restricted to the developed world, where new technologies could be widely applied. The rise of emerging markets, however, has changed this assumption. Although those markets are not yet fully developed, they’ve come to offer a unique opportunity for high growth for businesses that can meet their particular needs. Abbott and others have adapted their thinking and their models to do so.

Anticipating and identifying challenges and opportunities is just the first step. Moving to address them strategically can involve difficult change, both inside and outside the company.

One of the greatest obstacles to this necessary process is something usually considered a virtue and very difficult to overcome: emotional attachment to the status quo. You must refuse to love your product, or mode of production, or whatever your seemingly lasting advantage is, so much that you hinder your ability to make the changes needed to sustain success.

The separation on which we’re now embarked is perhaps our most dramatic transformation in Abbott’s 124 years in business. It is not an easy thing for us to do. The pharmaceutical business we’re separating out is the one started by Dr. Wallace Abbott himself, and we’ve made signature achievements in it that are foundation stones of our history and culture. As Kraft and others have found in taking similar steps, it’s very hard to create change of such magnitude in organizations that are healthy and successful. Change is not urgently required.

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Mr White, as a former Abbott employee, I respectfully disagree with some of your justifications for the split of the companies. I have always felt and a lot of abbott employees current and former that what made Abbott special was that it took care of its employees better than the competition. This Human Capital Management asset is hard to track because it doesnt fit neatly on the balance sheet but is measured in the moral and positive energy generated by a happy and successful workforce. The recent rounds of layoffs prior to the split have come at a tremendous cost, some of your best workers who have given their lives to Abbott had to choose voluntary retirement. I have no doubt that your strategies will work, its just the way you choose to achieve those objectives that may require a renewed committment to maintaining the superior reputation for employee compensation and benefits that Abbott enjoys locally and internationally, Great Article from and Exemplary leader.